Understanding finances is an essential part of running any business.
Placing blind faith in ideas and processes will only get you so far. It isn’t until you see the impact of your efforts on your bottom line that you can scale sustainably.
That’s what profit and loss statements are for: seeing the financial health of your company at a glance.
Often referred to as P&L statements for short, these documents give you a snapshot of your company’s financial gains and losses. Over time, the statements can provide a clear picture of whether you’re heading in the right direction or not.
In this guide we’ll cover what exactly the P&L statement looks like, the various elements you’ll need to include, and practical templates you can use to create your own.
What is a profit and loss statement?
A profit and loss statement serves a simple purpose: to show how your total revenue as a business compares to your expenses, usually over the course of a quarter or fiscal year.
If your revenue is higher, then of course you’re operating at a profit. If it’s lower than expenses, then this can be cause for concern as your company is making a loss.
With the P&L statement, you can keep tabs on the financial health of your business and reveal opportunities for growth or identify troubling trends.
To put together a P&L statement, use the following formula:
Total revenue — total expenses
Of course, there’s a lot that goes into a company’s revenue and expenses, and you can break it down like this:
Revenue: Your revenue is the sum total of your business profits, so add up everything your company made, including any additional sources of income
Expenses: Your expenses go beyond labor and merchandise production costs, including operating costs and everything outside of your control such as interest, taxes, amortization, and depreciation
How often you draw up a P&L statement will vary based on the size of the business and involvement for external stakeholders.
A small business would usually produce one each month to track financial performance, whereas medium to large-sized companies can do them once every few months, or quarter, for the benefit of stakeholders.
The P&L statement is similar to, but not to be confused with, the cash flow statement and balance sheet:
- Cash flow statement: The cash flow statement provides data on all the money coming in and going out of a business. While a P&L statement shows profitability, the cash flow statement shows where money is coming from, where it’s going, and your current cash situation
- Balance sheet: A balance sheet displays information such as a company’s assets, shareholder equity, and liabilities
As such, the P&L statement can be considered just one of three important statements to understand if you want to master your company’s finances.
What are the parts of a profit and loss statement?
There are four main elements of a profit and loss statement:
- Business revenue
- Business expenses
- Net revenue
Each part reveals important information about the financial standing of your company, so you can make changes if necessary.
From the profit and loss statement you can make inferences about operational efficiency, pricing strategies, and more.
The first section of a P&L statement will reflect the total business revenue, which is the sum of everything the company made for the specified period.
For business revenue, you need to track all money coming in. (Don’t worry about any of the expenses involved as we’ll get to those later.)
The simplest way to calculate your business revenue is to use the following formulas:
Total number of units sold x average price
Total number of customers x average price per unit
You may also have what is referred to as ‘other revenue,’ which will also need to be factored in. For example, anything that isn’t considered a primary business activity but still brings money in should be included.
Your business expenses are the costs you incur for running your business.
Examples of expenses include:
- Building rental
- Utility bills
- Office equipment
Some expenses will be fixed, while others are variable. As such, it’s important to make sure you understand which are variable as these can fluctuate from one P&L statement to the next.
Net revenue, which is used interchangeably with net sales, refers to the total income you generate, minus adjustments. These include:
Here’s a formula you can use to work out your net revenue:
Gross revenue — adjustments
In layperson’s terms, the net revenue gives you the real figure of how much money you’ve brought in, accounting for the adjustments outlined above.
Now we arrive at the most important part of the P&L statement: the bottom line.
Let’s start with the formula for calculating your company’s profitability:
Net revenue — business expenses
Once you have your net revenue figure and total business expenses, it’s a simple case of subtracting the latter from the former to calculate your profit.
So, how do you interpret this figure?
If you have a positive balance, then you’re in the black. If it’s a negative balance, you’re in the red.
While the figure won’t tell you everything you need to know about your company, it will give you a clear indication of your current financial standing. When compared with previous P&L statements or future profit and loss projections, this figure can help you identify financial trends.
Profit and loss statement templates
Tracking down the financial data to plug into your profit and loss statement can be a challenge, so why make things more difficult by creating it from scratch?
There are many useful profit and loss statement templates available to download for free online. With a template, you can quickly and easily create a reliable way of tracking your company’s financial health.
Depending on what you’re looking for, one of the following P&L statement templates should serve you well.
Small business profit and loss statement
If you’re a small business owner and you need a simple way to start monitoring your company finances, this small business profit and loss statement template can help.
With this free template for Microsoft Excel, you can calculate the percentage change from one month or year to the next. That way, you can see whether your financial health is on the up or facing a decline.
In the template, you’ll be able to input your sales revenue and cost of sales information, and itemize them according to the individual products or services for full transparency.
The three most important columns are:
- Prior period: Here’s where you’ll add your total sales revenue and cost of sales sums for the previous month or year for quick comparison
- Budget: Here’s where you’ll list your budget information for the month or year
- Current period: Here’s where you’ll add your most recent total sales revenue and cost of sales sums to compare with the prior period
This is an excellent P&L template if you want to maintain records of profitability over the course of several months or years as you scale your small business.
Monthly profit and loss statement
With this straightforward template, all you need to do is categorize incoming and outgoing money as either income or expenses, and then plot that information out on a month-to-month basis.
The template is basic, but leaves plenty of scope to itemize your income and expenses with as many rows as you need. At the bottom of both the income and expenses sections, you’ll be able to calculate your total expenses for each month and then add them all up to figure out the yearly sum, too.
There’s also a row for ‘profit/loss,’ where you’ll subtract your total expenses figure for each month from the total income figure.
Yearly profit and loss statement
This sample profit and loss statement template for Microsoft Excel is great for tracking year-on-year profitability, but it can also be modified for monthly use.
If you’re looking for a comprehensive breakdown of your company’s finances, with a space to add your company logo for professionalism, this template is a good option.
You can add information about your sales, income, expenses, and taxes, and Excel will do the calculations for you. Once you input all the relevant data, Excel will work out your current gross margins, return on sales, and provide an overall summary figure.
The template also includes the following information:
- Total prior period
- Total budget
- Total current period
- Total current period as % of sales
- Total % change from prior period
- Total % change from budget
As such, you won’t just get a glimpse into your company numbers but a full breakdown of what changes from one year to the next.
At the bottom of the template, you’ll also find the following (which Excel will calculate for you):
- Gross profit
- Total operating expenses
- Income from operations
- Net profit
Profit and loss projection statement
With this profit and loss projection statement template for Microsoft Excel, you can keep your finger on the pulse of your company’s finances and set yourself up to make calculated projections of profitability in future months.
Simply add your sales revenue stream figures for each month and after several months you’ll be able to identify trends and make projections with the line graphs in the template.
If you want to measure the profitability of your company accurately, it helps to stay on top of the numbers. With an enterprise project management solution such as Wrike, you can create budget estimates, view reports, and measure project profitability.
Here are some of the financial services and features Wrike offers to help you manage your company finances:
Real-time budget tracking
To keep an eye on how each project is going in financial terms, it’s a good idea to set up a budget ahead of time and monitor it as you go.
With Wrike, you can add custom fields such as budget totals and other budget categories to your reports. When you add team collaborators in settings, you can open the doors for various team members to view and update expenses in real time.
As a result, you can build and maintain a clear picture of your finances as you go so you’re less likely to be surprised by what you see when you fill out your profit and loss statement.
For client-based work, it’s not uncommon to operate on an hourly basis. In these cases, it helps to have a time tracking tool to make sure that each hour and minute worked is an hour or minute paid.
Wrike’s time tracking allows you to not only ensure accurate payment, but also inform team leaders how long projects are taking so they can make any necessary adjustments going forward.
Using time tracking can help you generate more accurate client quotes and budget projections.
While it’s always a good idea to be proactive with budgeting and time tracking, it’s also a good idea to have detailed reports of past work completed. That way, you can build a picture of your finances over time, and create more accurate predictions and projections going forward based on past data.
With Wrike, you can access project overviews that will show you several calculated field options, including planned fees and costs.
When tracking your financial health, it helps to have the tools to measure profitability and understand where your expenses can be reduced.
Sign up for your free two-week trial for Wrike today and get a complete overview of your company’s finances.
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